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The Messiness of Euro-Democracy 1

What kind of democracy doesn't care what the voters think?

By Will Offensicht  |  November 4, 2011

[Editor's note:  As we went to "press," there were reports that the Greek prime minister had canceled the referendum.  He is supposed to have said, in effect, "The opposition party is fine with the bailout; my party is fine with the bailout.  Why should we ask the voters?"  The opposition, knowing that the bailout is hugely unpopular and not wanting to share the blame, may back away from opposing the referendum.

"Why should we ask the voters?" being asked in Greece, the cradle of democracy, is nearly as surprising as the fact that most of Europe's great and good believed that a single currency union among countries with such different rates of growth could ever work.  We'll watch what happens and opine.]

USA Today reports that the Greek government has decided to hold a referendum to see if the Greek voters will go along with the bailout plan.

The European leaders who cobbled together a deal over dinner meetings in Brussels with bankers, investors and political elites to solve the Greek financial crisis and save the European Union forgot one thing: politics.  [emphasis added]

The New York Times asserts that some members of the Greek ruling party are angry enough to bring down the government and replace the prime minister:

Several lawmakers in the governing Socialist Party rejected Mr. Papandreou’s surprise plan for a popular referendum on the Greek bailout.

Every since they joined the Euro currency zone in 2000, Greeks have been living high on the hog based on borrowed money.  The elites who cobbled the single-currency Euro zone together lied - they told everyone that all Euro-denominated government debt carried the same level of risk.

The German economy was growing so the German government could borrow at low rates.  Having joined the Euro zone, the Greek government borrowed money at the same low rates the Germans enjoyed.

Let the Good Times Roll!

And borrow they did!  Like politicians everywhere, Greek politicians like to give away money to keep voters sweet.  Both parties stuff government employment rolls by putting supporters in cushy, no-show jobs.  The Wall Street Journal reported:

For decades, both the socialist party and the principal opposition conservative party have seized the opportunity, when in power, to pack the civil service with supporters. Greece now has thousands of teachers without classrooms and salaried bureaucrats with no job to do.  [emphasis added]

The result is both a bloated public payroll and, just as worrisome, a state sector ill-equipped to manage an epochal crisis.

Knowing that many "teachers" don't have to show up for work discourages the others.  Unemployed Greeks collect more than the average European working wage.  Government workers retire early on lavish pensions.  Lawmakers get free cars, get paid extra for attending committee meetings, and enjoy lifetime government employment after serving one term.

Greek government revenue simply can't keep up: Greek tax data show that Greeks have always been averse to paying taxes.

The London Telegraph reports that there are more Porsches in Greece than there are taxpayers declaring 50,000 euro incomes.  Depending on the exchange rate of the moment, 50,000 Euros is around $60,000.  There's no way that anyone who makes no more than $60,000 can afford a Porsche - these cars are clearly bought with income which the tax authorities have never seen.

As in the United States until the rise of the Tea Party, nobody besides a few curmudgeons ever questioned the wisdom of running such huge deficits or worried about paying back all that debt.

The Second Shoe Teeters

Unfortunately, all big-spending eras come to an end sooner or later, and the Greek crisis has been building for some time.

The first shoe dropped when the investors who bought Greek bonds to fund their spending spree realized that the Greek economy had no chance of paying back all that debt.  The question became, would the investors lose all their money through a Greek default or would the rest of Europe pay them back?

Most Greek debt was held by big banks in the rest of Europe.  If those banks lost all that money, their taxpayers would have to bail them out.  With elections coming, European leaders struggled to paper over the hole in Greek finances without having to ask their taxpayers to cover the bill, at least not until after the next election.

The Times explained why the European leaders who cobbled together the deal are in such a panic:

The big fear is that a decisive turn against the bailout package in Greece could undermine European efforts to enforce deep budget cuts in other heavily indebted European countries, especially Italy ... [which] has a far larger economy and much more debt than Greece. [emphasis added]

All Western democracies tend to spend more money than they take in as tax revenue.  Citizens like spending, don't like taxes, and vote accordingly, so governments have to make up the difference by borrowing.  Cuts are inevitable when the money runs out, but nobody wants to cut anything, ever.

Just One More Dance...

The music stops when nobody will lend any more; whoever's in office at the time loses the next election.  Quite rationally, the ruling elites always kick the can down the road, hoping to buy enough time to get past the next vote and make sure Someone Else is at the helm when it all caves in.

France and Germany together can't pay all the Greek debt and all the Italian debt; their leaders will be voted out of office if they try.  Investors know this, and are demanding very high interest to lend to either of those countries since they have no great confidence of ever seeing their money back.

The great Euro-elite hope was that by making enough promises, France and Germany could persuade the investors to roll over their debt yet again and put the crisis off a while.  Who knows?  Maybe the economy might improve in the meanwhile and kick the can down one more election cycle.

As USA Today pointed out, however, the French and German elites forgot Greek politics.

Part of the deal was additional cuts in welfare benefits and state jobs for Greeks, as well as succumbing to the EU budget monitors permanently placed in Greece to see that they lived up to the terms of the agreement, a concession to Germany that rankled the public.

Nobody has formally asked French, German, or Greek voters what they thought of the bailout plan; President Sarkozy of France and Chancellor Merkel of Germany cut a private deal without consulting the unwashed masses.  Greek voters expressed their opinion by rioting, but they, too, have been shut out of the negotiations: seems the Greeks are balking — ducking for political cover by giving Greek voters, until now lacking a place at the bargaining table, a chance to be heard, analysts say.  [emphasis added]

Throw the Rascals Out!

Of course Greek voters will balk.  The rest of Europe has demanded drastic spending cuts and huge tax increases and wants them enforced.  Polls show that at least 60% of Greek voters oppose the loss of sovereignty implied by having unelected European bureaucrats control Greek spending for the next few decades.

Having become accustomed to their government spending far mote than they pay in taxes, the Greeks are not interested in having benefits cut or taxes raised.  As one voter put it,

“This deal, like all the others, is a life sentence of austerity for Greeks.  We need to reclaim our country.”

- New York Times Quote of the Day, Nov. 2, 2011

Nobody else has explained where the money will come from to maintain the Greek lifestyle; why should we expect this voter to know?  The Times observes that governments generally fall in such times:

If Mr. Papandreou’s government falls, it would not be the first one in Europe to be toppled by the austerity demanded by European debt relief. In Ireland and Portugal, governments fell after accepting bailouts from the European Union and the I.M.F., and last month the Slovakian government fell over a vote on whether to participate in the European Union’s rescue package.  [emphasis added]

We saw this on a smaller scale in the experiences of the Occupy Wall Street campers.  When the OWS crowd started giving away free food, they attracted crowds who a) didn't support their political objectives, b) were ungrateful for what they received, c) stole whatever they could grab, and d) became disorderly when the food ran out.

Some Greek politicians don't want voters to have a say - several members of the ruling coalition have told the Prime Minister they'll vote "no confidence" if he presses ahead with the referendum.  Opposition parties oppose most of the austerity measure, but haven't explained how the government can pay its bills without the bailout.

Let's sum up the situation:

Having set the stage in this article, the next article in this series explores some of the possible outcomes.